Economics can be defined as a social science that is studied about the behavior of people. “A social science that deals with how consumers, producers and societies choose alternatives, among uses of scarce resources in process of producing, exchanging and consuming goods and services.”

1. ENVIRONMENT ECONOMICS
Mainly concern about environment problems occurs due to,
 The problems of property rights
 The problems of externalities
THE PROBLEMS OF PROPERTY RIGHTS
- For market goods
- If not that, can’t be delivered good into the market. Bcz,
No property rights No value( value means prices)
- Capitalism countries depend on this. But socialist countries not.
All goods & services are All goods and services are confiscated.
Privatization.
Cost of production: Cost of Production: It’s divided for all
Have a value for products. Citizen in the country. So, no need to
Cost divide into supplier of goods make a price.
and services.
No property rights for natural resources. Therefore no price.
Environment pollution (no value. Use resources without responsibility)
MARKET FAILURE
Is unable to sell some goods. Bcz,
Don’t have clearly defined property rights.
Characteristics:
 Universality (Quality / states of being universe) - සාර්වත්‍රිකභාවය
All resources are privately owned. All elements are completely specified.
 Exclusivity - බහිෂ්කරණය
All benefits & costs only for the owners.
Can directly / indirectly sale to the
others.

2.  Transferability - පැවරිය හැකි
Properties Owner
Transfer: need voluntary exchange.
New owner
 Enforceability - බලය පවත්වා ගැනීම.
Property rights secured from involuntary seized /
Encroachment by others.
THE PROBLEMS OF EXTERNALITIES
- External one
- One’s action affect to the well- being of others.
Negative Positive
Externalities Externalities
-adverse to others. –beneficial to others.
Way of externalities affect the market
- For every unit of product have a social cost: cost pay for pollution, decay the
natural resources
- This cost add to the cost of product. So, MC shift to left.
- Market need to produce more at low cost of production, without social cost.
- According to the graph, (Ps – P) , (q – qs )
This is Market Failure.

3. Internalization of externalities
Keep produce at MCs  That should be charged externality impose on the
producer.
Maintain social welfare
- Point (Ps * qs) Pareto Optimal Point in a marketing secter.
+ more suitable for a society
+ earn benefits for both the producers & the
Consumers are maximum.
Surplus: use / need is satisfied.
SOLUTIONS – 1. From the government : State intervention
2. From private sector : Private intervention
1. Private solutions: > Moral codes & social sanction
>Charities
>Integrating different types of businesses
>Contracts (by affected parties)
WHY always NOT? - Increased transaction cost
- Flow information – imperfect
- No of interested parties – high

4. COASE THEORUM
- How effective is the private market in dealing with externalities
- According to Coase,
“If private parties can bargain without cost over the allocation of resources, then
the private market will always solve the problem of externalities and allocate
resource efficiently”